Founded in June 2000, On.Net is a leading provider of telecoms and broadband services in Macedonia, where it is the second largest internet service provider.
In its efforts to build its own national wireless network, On.Net went up against a local telecom giant that enjoyed a comfortable monopoly in the wired space. On.Net needed both financial and strategic support from SEAF’s staff in Skopje and Washington, D.C. in order to develop its network across Macedonia. Specifically, On.Net needed funds for telecommunications equipment, computers and working capital.
In 2002, SEAF Macedonia LLC provided equity financing to the wireless internet provider. In 2002, a significant rise in operating costs caused by an incumbent internet service provider forced On.Net to change its focus to business customers, where profit margins were significantly higher. With the strong support from SEAF’s local staff and the engagement of western management consultants hired by SEAF, the company developed its new strategy. On.net diversified into other telecommunication services, such as the provision of SMS-based services to mobile telephone operators. Following the difficulties the company faced in 2002, SEAF proposed to convert its loan and overdue interest into equity. This conversion improved the company balance sheet, allowing On.Net access to additional financing to lease equipment for wireless provision of internet access.
On.Net’s partnership with SEAF allowed the company to efficiently service current customers, significantly expand its customer base, and provide better, lower-cost access to consumers who previously had no Internet access. The invested capital assisted in the expansion of On.Net’s network across the entire country of Macedonia, and as a result, Macedonia was internationally recognized in 2005 as the first “wireless country” in the world.
The increased competition resulting from the new availability of internet service lowered the average cost of connectivity from $125 per month to $15 to $20 per month, dramatically expanding the opportunity for increased connectivity and associated opportunities to a much broader base of price-sensitive consumers. With its new strategy, On.net’s customer base grew on a monthly basis and by 2003, On.net was gradually taking over business clients from its competitors and was building a reputation of a reliable alternative for internet service.
SEAF and On.Net also presented an idea to the USAID mission in Macedonia about connecting all Macedonian schools to the internet. After more than eighteen months of discussion, USAID accepted to sponsor the project. In early 2005, On.net won the contract for the provision of broadband internet access to all 500 schools in Macedonia for a period of 3 years in a project called “Macedonia Connects”. SEAF played an important role in this process, especially in facilitating the communication between USAID and On.net, and in the preparation of the bidding documentation.
In less than 3 months, On.net succeeded in building its own wireless communication network across the country and providing broadband internet access to all schools in Macedonia. The school connectivity project was even the subject of a BBC telecast. This network made On.net a serious player in the market for telecommunication services in Macedonia, allowing the company to become the alternative telecommunications operator.
A Completed Exit
On March 20, 2006, a few months after completing the network, SEAF sold its stake in On.Net to Slovenian Telecom, a major regional telecom provider that would continue to provide state-of-the-art service to consumers at competitive prices.
Vladimir Pesevski, Director General of SEAF-Macedonia, stated upon the exit, “Six years ago, we invested in a small team with a vision for an innovative business, which at that time was a relatively new idea in Macedonia. During this time, we succeeded in overcoming many obstacles, including the monopolistic, administrative, and market barriers, because of which, Macedonia still has a very low Internet penetration. Throughout that process, we have established On.net as a leader in implementation of new technologies and innovations, which helped Macedonia become the first fully wireless internet service covered country in the world. The main credit for this development goes to the management team and On.net employees, with whom SEAF has worked closely throughout this partnership. For SEAF, the most important accomplishment is that once again, we have managed to bring a large foreign strategic investor into one of our portfolio companies.” Mr. Pesevski stated that this transaction further confirms the contribution of investment funds like SEAF to the growth and development of the local economy, as well as to the process of attracting additional foreign investments.